The Corporate Veil And Its Piercing As Clear As ?

Introduction

The issue of piercing the corporate veil has recently come under the spotlight. However, the recent cases have sometimes been decided in a way that is not entirely consistent and this has caused uncertainty. They can have important application both for individuals in the way that they structure their affairs and companies, particularly international companies, in the way that they are structured and operated.

Corporate Personality- the background

The principle of separate corporate personality, namely that a company is separate from its shareholders and which is illustrated by the 19th century case of Salomon v Salomon is one of the cornerstones of English company law. It is a principle which has been adopted by many common law jurisdictions and has a solid legal and economic justification.

Piercing the corporate veil

The Courts have been reluctant to breach this established principle although since Salomon v Salomon there have been a number of exceptions allowed. The difficulty for legal practitioners is in trying to predict in what circumstances the corporate veil might get pierced and whether, if it appears that the grounds for piercing the corporate veil do not exist, whether other grounds might be found which have a similar result. This has always been an issue but the recent cases have put the issue in stark relief. Given that one of the principal tenets of a fair legal system is that there should be some degree of certainty in the application of rules this is not entirely satisfactory.

The recent cases

In the recent company case of VTB Capital Plc v Nutritek International Corporation a creditor of a company attempted to pierce the veil in such a way that it effectively sought to make a shareholder a party to a contract even though there was no contractual nexus. This was an extreme position to take, for which there was little authority and unsurprisingly, the Courts rejected the application. The position appeared reasonably clear but after that, however, came the much publicised matrimonial case of Prest v Petrodel and, more recently, the competition case of Akzo Nobel v The Competition Commission.

Prest v Petrodel - the commentaries

Prest v Petrodel was finally adjudicated by the Supreme Court. At the time it received a lot of general press comment as well as a lot of legal commentary. The general press comment centred upon the former wife obtaining her "just rewards" whereas the legal commentary focussed on the piercing of the corporate veil. One of the interesting facts about the case is that before the Supreme Court judgement was given, a lot of legal commentators had suggested that the Court of Appeal judgement, which did not find for the former wife, would be upheld. All those commentaries, however, seemed to miss an understanding of the influence of public policy and thought always needs to be given to what a court will decide whatever the strict legal analysis might be. In my view, therefore, it was almost certain that the wife would win but the interesting issue would be on what grounds the Supreme Court would find in her favour. This though is where an element of uncertainty comes in because although the analysis in the judgements is clear they leave open other issues which are likely to cause difficulties.

Prest v Petrodel- the facts

In Prest v Petrodel the husband was a wealthy oil trader who had built up a portfolio of properties; all of which were in the names of...